by Dana Blankenhorn
Volume V, No. XXXIV
For the Week of August 27, 2001

This Week's Clue: Consensus Comes from the Market

This Week's Clue: Consensus Comes from the Market 

SSP (Shameless Self Promotion)

SP (Shameless Promotion)

Worldwide Market?

Death of the Standard

The Fight to Make Names Worthless

Clued-in, Clueless

I had a rare old time after writing about democracy, liberty and capitalism recently. Several people criticized me for including capitalism in the list. 

The fact is that markets are the best system I know for reaching consensus, and consensus is necessary for an orderly online world. In a free market prices, terms and conditions of sale are all perfectly negotiable. The freedom, even the requirement, to negotiate lie at the heart of all Internet commerce. 

In line with that it took me some time to figure out what made the recent comments of Charles Mann , later republished at MSNBC.Com, seem so totally Clueless.

Mann, a contributing writer to MIT's Technology Review, was arguing that the idea of an uncontrollable Web is a myth. It can, and will be controlled, he claimed, and the only question is who will do it.

If he meant laws will be enforced and people put in jail, he's right. People are already in jail for crimes committed in the comfort of their own homes. More will be going there. But if he meant that anything democratic governments decide is law will be reliably enforced in the online world, he's a moron.

It seemed he was thinking of the latter because his main arguments were against Bearshare , a Gnutella clone. Like Napster, Bearshare violates the Digital Millenium Copyright Act , which for Mann seems to end the matter. He claimed that even Freenet , which does the same thing but encrypts file exchanges, can be beaten by "treating it as an unsupported feature, in the way that many providers today do not support telnet, Usenet and other less popular services." 

Getting past the Cluelessness of that statement (treating encryption as an unsupported feature), the real problem with Mann's argument is it ignores the need for consensus in creating laws that work in the online world. It's not enough on the Internet for governments to demand that things change, or even for democratic governments to pass laws demanding that things change. There must be a consensus on behalf of change, backed by law enforcement, before things will really change. And even then the change will be imperfect. Even the most heinous crimes, like child pornography, are exceedingly difficult and expensive to stamp-out online. How, then, are we going to stamp out acts when there's no consensus they should be illegal?

The DMCA is law, but if the market won't accept that law by consensus - if even a significant minority of users refuse to abide by the law - then they will find ways around it. They will do what is done in the real world. They will create an "underground economy" in which law enforcement becomes merely a tax. We've seen this with drugs. The DEA says cocaine costs less today than it did 20 years ago, despite the huge costs - personal and financial - involved in fighting it. Does Mann think you can't find marijuana in Cambridge? 

It takes both consensus and democracy to create viable online law. There is a consensus against spam, but because democratic lawmakers have been unable to write a reliable definition into law (thanks to these jerks) there's no enforcement to back that consensus. Still, filters, vigilantes and systems like Spamcop.Net do fight spam - they do a better job of controlling spam than the RIAA does music-swapping. That's because while the anti-spam vigilantes don't have the law on their side, they do have consensus. 

There is no consensus in favor of the DMCA. The industry has also created no valid marketplace alternative to Napster. There is no service with a reasonable price and payment mechanism that will give people the same rights to use and enjoy music they had 20 years ago, including the right to make portable copies. Most people would love a chance to swap music legally, and see artists paid for their work, but until the industry offers such services at reasonable prices the proposition can't be tested. The entire economy is underground. 

There's another argument against Mann that is even more compelling. That is, if the DMCA can be enforced - despite the consensus opinion of the market that it goes too far -- then any law can be enforced online. If the DMCA can be enforced then China can gain all the benefits of the online world without paying the price in liberty. So, too, can any tyranny over the mind of man.

Mann is wrong not because of technology, or hackers, or the ubiquity of the Internet. He's wrong because he doesn't understand people. People will fight for what they consider their rights. Law enforcement may fight back, but the result of that (when the law lacks consensus) is just endless war. War is unhealthy for markets and other living things. 

The only laws that can be enforced with any reliability are those that are created democratically, that meet the test of the market, and that are approved of by consensus. In terms of the online world anything else is tyranny. Until democratic leaders accept that, and adapt to it, increasing portions of the Internet economy will move underground and honest entrepreneurs will starve for capital. 

SSP (Shameless Self-Promotion)

The draft is done. "Living on the Internet: How to Make Money, Live Right, and Fight For the 21st Century" is now in the hands of the folks at eBookAgent , which is arranging for electronic distribution. I'm hoping to add a monthly newsletter as an up-sell, available free to all buyers of the book. Your testimonials would be appreciated. Drop me a note if you need a sample chapter first .

You can join the A-Clue.Com discussion at I-Strategy , our shared e-mail digest produced with Adventive.Com. You can also read me at ClickZ , B2B, at Boardwatch, ISP Executive, Sitepoint  and the new (paid) version of WorkZ. More deals are being sought. Remember that it's journalism that keeps the Clues coming...

Shameless Promotion

You have a little list, but how do you make the most of it? You turn it into a database, you query the database, you audit the results and you deliver market research to yourself and to others.

Permission is just the first step. An audit is the second step. Building interactive relationships with every name in your database is the greatest business asset you can have.

You can take the first step toward making your little list truly valuable with help from my friends at Whitehat Interactive - click here to begin that journey.

Takes on the News

Worldwide Market?

I was forced to turn down two major projects in the last two weeks, and how this happened illustrates the conditions and problems now prevailing in the Internet Economy.

The first proposal came from an Australian outfit. They've been making profits right along thanks to lower labor costs. Apparently you can get a high quality, full time reporter for $20,000/year if you use Australian dollars and don't mind if he (or she) says "g'day" a lot.

The financial strength intrigued me, but the offer wasn't that good. It was a straight revenue-share. I'd perform based on an idea of my own, they would publish the results, and we would share the revenue 50-50. I was ready to go because I believed in my partners' honesty, and hoped to benefit from their lower cost structure.

Then I got what I thought was a better offer, this time from Europe. The idea was that I'd write 10 columns based on my upcoming e-book, "Living on the Internet." Again, the financial arrangement was a straight revenue share, but in this case my partner was promising to syndicate the columns. Syndication wouldn't necessarily mean more money, but it would mean a ton of readers, and a ton of prospects for the book. So I dashed off my first column and sent it in with a smile on my face.

Within a day my new boss was responding with anger and consternation. I'd accused someone of being a spammer. Never mind that the person in question was a notorious spammer, perhaps the most notorious of them all. He could (and probably would) file suit in a European court, my editor claimed, where authors must prove the truth of what they write. (In a U.S. court, the burden of proof is on the plaintiff.) Unless I was willing to take the whole potential liability the deal was off.

Needless to say, the deal was off.

Two lessons emerge from all this, and they're contradictory. On the one hand since this is a worldwide medium content can come from anywhere and if writing can be had for less anywhere it will be. American authors must compete for work in a declining market against Irish writers, Australian writers, even Indians.

The second lesson involves "forum shopping," something that could be wildly encouraged if the Hague Convention wins approval. All efforts by U.S. writers could be enjoined by European courts. Australian standards on "Internet decency" could become the law worldwide. The Internet could easily be reduced to the least-objectionable content, destroying the Internet industry in the process. (At the very least, the industry could be driven underground.)

The unsettled nature of all this could mean enormous power for publishers who can afford the costs of litigation. Such publishers could wind up exercising enormous control over what anyone can write on the Internet.

I was reminded of this again while watching CNN coverage on the case of Vanessa Leggett , a Houston journalist who has been in jail a month for refusing to turn over notes to a grand jury. The anchor questioned the woman's lawyer at length over whether she was really a "journalist" (entitled to some shield) because she was working on a freelance basis. The implication was that only employees of big publishers (such as CNN) are worthy of defending. The result of that attitude would be that only the rights of big publishers could be defended.

Death of the Standard

The closing of "The Industry Standard" represents financial malpractice of the highest order.

I didn't agree with everything the Standard wrote, or the way it operated. But I do know that, for a time, it was wildly profitable. What happened to those profits? Real publishers bank profits, they retain earnings, to get through tough times. IDG owned most, but not all, of the publication. My guess is IDG chairman Pat McGovern, who is near retirement age, didn't want the liability of the recession on his books.

Still, the closing is a very bad sign for the Internet industry. The loss of the "Standard" means there is no longer any publication speaking with one voice about all the Internet's industries - content, technology, and commerce. Over the next few years this will prove the biggest hardship resulting from IDG's short-sighted decision.

The Fight to Make Names Worthless

Business names should be worthless. They should cost no more than the money needed to register them. It was in the name of making names worthless that ICANN approved 7 new TLDs last year. And it's that effort that should spur the creation of even-more TLDs.

But speculators are determined to prevent that. They continue to snap up "valuable" names (names someone once valued) as quickly as they're dumped back on the market (http://www.nightlynamedump.com). The "pre-registration" period on .info and .biz addresses has just resulted in a huge "land rush" that benefits no one but the registrars .

Rather than condemning those who are fraudulently trying to "game" the system so they will "own" generic names , as Brock Meeks recently did, it might be better to look at some history. There's a great tradition of this in the U.S. - why do you think Oklahoma is called the "Sooner" state?

Remember that by the time Oklahoma was seized from the natives and given over to white settlers it was obvious that the amount of available land was limited. This is not true in the case of the Internet domain space. There is no more theoretical limit to the number of words that could be placed after the . in a domain name than the number that can be placed in front of it. The sooner that realization dawns the sooner the domain name scam (and scandal) will end.

Clued-in, Clueless

Clued-in is FriendsReunited , whose deceptively-simple business plan represents a clear upgrade to Classmates.Com and, thus, should represent its next evolution.

Clueless are the poor fools who invested in Salon . Not knowing your audience is just as fatal a mistake as any lack of financial discipline.

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